The Bank of England set the tone for the rest of the week today as Mark Carney and the governors of the BoE announced a cut in the interest rate from 0.50% to 0.25% in an effort to be proactive at protecting the UK economy from the shocks of the Brexit. This movement seems counter intuitive to the general actions of Central Banks which tend to be reactive when it comes to economic shocks and collect the data before hand. In this case only 3 board members voted to wait and see and the vote to cut was implemented. On top of this, further quantitative easing was announced for the economy and it's expected that within the coming months this will likely be pumped in to bolster the credit sector and support lenders and creditors.

However, many are also pointing out sharp facts that with the uncertainty at hand for the next two years and the large drop in CAPEX, we may instead see an economy struggling and the BoE looking like it pull the trigger a little too early. Growth forecasts have also been downgraded by the Bank of England and Fitch from the previous forecasts of roughly 2% down to now 0.8-0.9%. This represents some large changes from previously and many are anticipating further falls if the economic shocks continue in the long run.

For the GBPUSD this left the market looking for further falls and fall it did on the announcement of a rate cut. The GBPUSD had previously struggled to break through the resistance band at 1.3340 and it seemed all the more likely that it would struggle given the market consensus has been bearish ever since the Brexit. In this case selling of news is becoming more main stream for the UK as bad news is likely to carry on for some more time, but the bears are looking in control and a push down to support at 1.3090 has so far caused a pause in any further movements. I anticipate we will see further falls here to 1.2939 and 1.2795 accordingly as the market looks to drift lower in the wake of recent events.

Canadian dollar traders have fought back in recent days after the oil market has looked to rebound after testing support levels around the $40.00 a barrel mark. This bottoming of the market is still looking a little shaky and could be a case of profit taking but so far the market has been receptive and the USDCAD has fallen accordingly to touch support at 1.3017, further falls to 1.2905 also seem likely if we see further spikes in the oil. On top of this all though we also have the upcoming Canadian economic data on the employment change and trade balance, all of which will be big movers and be shortly followed up by non-farm payroll from the US. As a result the USDCAD is likely to be a big mover in the coming hours and one to watch.

The Sterling plunged after Bank of England decided to lower the official cash rate by 25bps to 0.250% for the first time since 2009.

Looking at the technical picture, the pair remain under pressure below 1.3480 peak and actually, prices continue to print lower highs since 1.3535 peak. Therefore, a continuation to the downside remain possible especially if the labor market figures from the U.S come out higher than expectations.

In the near-term, the pair is testing a strong support located at 1.3115 and a daily close below it, should trigger a fresh sell-off towards 1.3050 weekly support.

Conversely, a re-test of 1.3180/1.3210 area should cap any rally attempt in the next hours.

WTI Crude edged higher on Tuesday with prices clipping above $43 as the ongoing talks by some OPEC members over a potential freeze on output generated speculative boosts in oil prices. Regardless of these short term gains, Oil remains fundamentally bearish and could be poised for steeper decline as the persistent oversupply fears haunt investor attraction. With concerns still elevated over a potential decline in demand amid slowing global growth most upside gains observed in oil could be capped. The terrible combination of oversupply woes and fears that demand may be waning could provide a foundation for bears to send WTI crude to unseen levels. From a technical standpoint, bears need to break below $42 for a steeper decline towards $40.

The Sterling/Dollar descended to fresh 1 month lows at 1.2963 following the soft UK manufacturing data for June which reinforced concerns over the health of the UK economy. Domestic data from the UK has repeatedly disappointed with the ongoing Brexit fueled uncertainty haunting investor attraction towards the Sterling. The ongoing threat that the majority of Monetary Policy Committee (MPC) expects UK interest rates to cut to near zero by the end of 2016 has encouraged investors to continue selling the British Pound in the aftermath of last week’s BoE interest rate decision. Sentiment remains bearish towards the pound with the GBPUSD vulnerable to further losses as the divergence in monetary policy between the BoE and Fed entices sellers to install another round of selling.

Global stocks ventured higher during trading on Tuesday as the renewed risk appetite from US rate hike expectations and resurgence in oil prices bolstered investor risk sentiment. Asian markets concluded in gains with the bullish contagion propelling European equities higher. Wall Street may follow this positive pattern with American stocks marching into the green territory as the feel good effect encourages investors to trade riskier assets. Although the stock market rally is impressive, the attributes for a bear trend such as concerns over the global economy and uncertainty still linger in the background. Investors should remain diligent as it could take an unexpected catalyst to rapidly halt the overextended market rally.

Global equities are on the rise and no where seems to be bucking the trend as of late. Lately with rates remaining so low and the outlook looking dovish the markets have been chasing yield, and with bond markets at record lows and offering nothing substantial, equity markets are looking to take full control. The FTSE 100 has certainly been one of those markets where even though the outcome has been somewhat dire for the economy, the stock market continues to find bullish pressure as the recent rate cut has put the spotlight back on equity returns. Record highs of an equity market are for the most part not an indicator of an economies health, but instead a case of cheap capital looking for a home in a market where yield is and will continue to be everything.

On the charts the FTSE is looking quite strong, but the correlation between movements with global equity markets is quite obvious, so it's clear that global impacts do have a far reach on the FTSE 100. Key things to watch with the FTSE 100 so far is the 20 day moving average, as the market has pushed down to it before and it has held up any further lower lows. So from a technical standpoint it has been looking quite strong and may remain so in the near future. Resistance also looks to be forming around 6817 and previously we have seen the market treat this level like a ceiling for some time when it comes to previous record highs. Support levels on the way down can be found at 6727 and 6626, with the later being the strongest level before the 20 day moving average; which is likely to catch any falls in the short term.

The Canadian economy has so far been a mixed bag but has managed to claw back some ground against the USD on the charts. Early results in the weak showed building permits m/m slowing down and coming in at -5.5% (1.5% previous), this was a much weaker response than the previous reading and shows that despite the recent rebound in oil there may still be some worry in the market. Even the current government stimulus programme may take some time to filter down into the economy in the short to medium term. Housing starts 198K were a little better and this has provided support the Canadian economy. However, at the end of the day oil prices will continue to be key for movements in the USDCAD as the correlation still remains strong.

For the USDCAD it has so far managed to get held up on the 20 day moving average when trying to push lower and claw back some ground. The bears are looking to make some ground, but the overall long term trend has been bullish in the medium to long term. Any further lower lows are likely to snag on the trend line that formed on the 16th of June that is bullish, a push through will likely find support at 1.3017.

The GBP/USD pair stalled its Asian retreat near 1.3020 region and embarked upon a minor-recovery mode in Europe, despite the latest headlines from BOE on reverse auction shortfall.GBP/USD keeps gains above 1.3000Currently, GBP/USD rallies +0.33% to 1.3045, recovering a brief dip to session lows reached at 1.3024. The major caught a sudden bid wave last hour, as the pound appear to have ignored the BOE’s headlines that it plans to incorporate yesterday’s GBP52 million auction shortfall in H2 of plan. Monday’s reverse auction shortfall underscores concerns that there are no willing bond sellers in the markets, with the pension funds apparently unwilling to sell them. Hence, this turns out to be sort-off a vote of no confidence in the sterling. Meanwhile, markets also digest the BOE Agents' summary of business conditions, which revealed negative impact of Brexit on the services sector as well as on the hiring turnover. Calendar-wise, focus now shifts towards the US JOTLS jobs data, which is expected to provide further momentum on the major.GBP/USD Levels to consider The pair has an immediate resistance at 1.3091 (daily top), above which 1.3151 (daily R3) would be tested. On the flip side, support is seen at 1.3000 (round number) below that at 1.2957/53 (Aug 9 low/ daily S1).

The AUD/USD pair maintained its strong bid tone and is now building on to its gains beyond 0.7700 handle to currently trade at a fresh 4-month high level.How strong has the move been?According to the hourly FXStreet OB/OS Index, spot is in neutral territory, while the FXStreet Trend Index is slightly bullish. RSI is in neutral territory at 67.34, up from it’s last hourly close at 66.55, while ADX is ranging above 30 at 25.72, up from 18.48 at the last
hourly close. Looking to a daily chart, we see that RSI is neutral at 61.85. The 200 SMA is currently at 0.7660, up from 0.7606 at the last period close, and climbing on the hourly AUD/USD chart. Moving in an upward trend, the exponential average closing price is 0.7568.How volatile has AUD/USD been?Hourly 2-Standard Deviation Volatility Bandwidth is currently 53 pips, and has been expanding, while the ATR (14) is currently 16 pips. Daily 2-Standard Deviation Volatility Bandwidth is at 262 pips and expanding. The average movement for the current hour has been for 16 pips per hour, over the last four weeks.Price levels to be consideredWith spot trading at 0.7719, we can see next resistance ahead at 0.7722 (Daily High), 0.7727 (Daily Classic R2), 0.7766 (Daily Classic R3), 0.7768 (Weekly Classic R2) and 0.7813 (YTD High). Support below can be found at 0.7700 (Daily Classic R1), 0.7694 (Weekly Classic R1), 0.7688 (Yesterday's High), 0.7680 (Hourly 20 EMA) and 0.7673 (Monthly High).

James Knightley, Senior Economist at ING, notes that the Bank of England’s Agent Summary survey suggests capex and hiring plans will be scaled back and turnover is expected to weaken, leading to a weaker growth outlook for the UK economy.Key Quotes“The Bank of England’s Agent Summary survey for August gives us a bit more information on how businesses have reacted to the Brexit vote. The general assessment is that there has been a slight softening in consumer spending and business services turnover, manufacturing wasn’t doing too badly, but construction was struggling. Meanwhile, hiring intentions had been scaled back “with contacts now expecting flat employment over the next six months”. This survey therefore adds some weight to the view that the immediate sharp drop in the purchasing managers’ indices may have been a slight over-reaction. Nonetheless, there are clear risks to the economic growth story. Indeed, the BoE asked direct questions on the expected impact on businesses from Brexit. A net 34.5% of respondents said they would reduce capital spending (0 firms said they would increase capex, while 40% said it would have no effect, 51% said they would slightly reduce capex and 9% said they would substantially reduce capex – note that when calculating the net balance the BoE give half weight to “slightly” and full weight to responses of “substantially” therefore 34.5=0.5*51+9). Hiring activity had a net balance of -29%, Turnover had a net balance of -25% and expectations for prices had a net balance of +12%. So with British businesses suggesting that they are pulling back on expansion plans the survey is consistent with the general consensus expectation amongst economists that the UK will experience a mild recession over the next 6-12 months. We therefore expect Bank Rate to be cut again in November to 0.1% with QE eventually upped to half a trillion pounds despite the BoE’s problems in purchasing bonds yesterday. We then expect Chancellor Phillip Hammond to carry through with his suggestion resetting fiscal policy at the Autumn Budget Statement, likely implementing an acceleration in infrastructure investment financed by borrowing to try and improve the productive potential of the UK economy.”

Derek Halpenny, European Head of GMR at MUFG, suggests that the summer lull coupled with the continued optimism in emerging markets and China have helped to dampen volatility and that appears to be boosting the allure of core G10 currencies that on a relative basis still offer some decent yield.Key Quotes“That’s the case even after the RBA rate cut last week and the RBNZ rate cut expected tonight. We mention above that rate spreads as a driver of FX for many currencies have completely broken down but the very sharp decline in implied volatility may well be helping lift demand for AUD and NZD even as the RBA and the RBNZ ease. Still, even incorporating low volatility, RBNZ action tonight will leave NZD/USD vulnerable. Again, this may well be a short-term phenomenon that will exist only during this quiet summer period. We are certainly sceptical of low volatility conditions remaining in place for long once normal trading resumes in early September. That could well prompt a liquidation of long AUD and NZD positions that have begun to emerge in these currencies according to the weekly IMM speculative positioning data. The performance of NZD/USD has added a degree of uncertainty to the RBNZ’s rate decision this evening. The RBNZ has expressed concerns frequently in the past over the strength of the New Zealand dollar and given the gains of late there is an argument to be made that the RBNZ could be more aggressive. The 3-month OIS rate implies 35bps of easing is currently priced so the market is certainly contemplating a more aggressive cut tonight.”

Dollar bears were installed with inspiration following the weak U.S productivity data which created a cloud of uncertainty over the likelihood of the Federal Reserve raising US rates in 2016. U.S productivity has fallen for the third consecutive quarter which may simply heighten fears of a deceleration in Q3 GDP consequently obstructing efforts taken by the Fed to break the trend of central bank caution. Although July’s blockbuster NFP of 255k initially bolstered expectations of a probable rate hike as close as September, investors have returned to normality with the CME FedWatch tool displaying a 40.6% probability of a December hike. Overall despite Tuesday’s soft productivity data, sentiment still remains somewhat bullish towards the Dollar and the encouraging outlook towards the US economy could provide a foundation for bulls to send the Dollar Index higher.

Stock market rally cools

Stock markets displayed signs of exhaustion during trading on Wednesday as the combination of weakening oil prices and lingering concerns over the global economy eroded investor risk appetite. Asian shares retreated from the near yearly highs with the Nikkei sinking lower after the Yen rebounded from risk aversion. Although European stocks were elevated on Tuesday from the positive earnings, the bearish domino from Asia could punish Europe as investors are repelled from riskier assets. Wall Street continues to charge into gains but questions could still be asked over the sustainability of the current stock market rally. Fears over the global economy are still visible while depressed oil prices continue to weigh on overall sentiment. The ingredients for a bear market can be seen with bears lying in wait for the current market correction to come to an end before installing a heavy round of selling.

The NZD has leapt up the charts after the recent news out of the Reserve Bank of New Zealand (RBNZ) to cut interest rates by 25 basis points. This record low of 2.00% had been expected by the markets and came as no surprise as August had always been touted as the time for the RBNZ to strike in the short term. And with the recent changes in mortgage lending it was always leading up to this scenario, as the RBNZ was able to hold back the tide of further property rises while cutting back interest rates. With inflation looking unlikely to be a major catalyst in the near future it certainly has opened up the possibility of further rate cuts, the question is how long can we go before the RBNZ calls it quits at the end of the day.

On the charts the NZDUSD response seems rather strange and quite bullish in the face of a rate cut, but in this case the market expectation was for exactly that and the confirmed result has only led to further buying of the NZD. The push up the charts found resistance at 0.7311 and this level was strong in holding back any further gains. For now the NZDUSD is looking very bullish and unlikely to budge unless we see any strong shocks from the RBNZ when it comes jawboning the market. The next major level of resistance is at 0.7475 and is likely to remain strong for upward movements. The major question surrounding the NZDUSD will be on the fixed interest side of things, with the rate cut putting pressure around there, especially as the US market looks to lift interest rates further.

Oil has been a big mover today in global markets after failing to find any momentum with the bulls and being pushed down by the bears after US crude oil inventories came in stronger than expected at 1.06M (-1.26M exp). This surplus is no surprise at all given the recent weakness in global economic growth and the fact that oil suppliers are keeping the taps on hoping that we will see a jump in the price of oil per barrel. For me this is a case of a race to the bottom, and while we might have already reached there - this seems to be a case of extra supply being added when the market is trying to recover.

Oil markets have so far been held up by support at 41.37 and this likely to hold in the short term, given how strong this level is looking at present. Any further drops are likely to find further support at 40.00 as this psychological has always been strong when it comes to large market movements. For the coming days though US economic data will likely have the biggest impact, rather than oil technical movements.

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